Episode 72: Plan Sponsor Predictions for 2025

Intro: Covering the ever-evolving retirement plan landscape to help identify the biggest opportunities for plan sponsors, CAPTRUST presents Revamping Retirement.

Jennifer Doss: Welcome, everyone, to another episode of Revamping Retirement. I’m Jennifer Doss and I’m joined today by my co-hosts. We have everybody together. The whole gang is here. I’ve got Audrey Wheat, Matt Patrick, and Pete Ruffel, who are all here with me today to talk about predictions. How are you guys doing?

Peter Ruffel: Doing great, Jennifer.

Audrey Wheat: Happy new year.

Jennifer Doss: Yeah, happy new year. I hope this goes well for everybody. I hope we stay happy because we are going to keep ourselves accountable, like Audrey said that we would last year. If folks remember, if they were listening last January, we did predictions for 2024, and we are going to cover those very quickly and see how folks did. And then we’ll move on to our predictions for this year, for 2025.

All right, Audrey, since you wanted to keep us accountable, I’m coming to you first.

Audrey Wheat: Absolutely.

I lead our strategic vendor relations efforts for CAPTRUST. So, my days are spent talking to and working with our recordkeeping partners to learn what they are focused on. So, yes, my prediction for 2024 was that there would be more recordkeeper consolidation and outsourcing. And wouldn’t you know, both of those came true. We did have a consolidation, one major consolidation. And we did hear of an outsourcing transaction as well, or a partnership transaction, sometimes it’s referred to. I didn’t put this in my official predictions for 2025, but I think it’s safe to say that trend will continue. But I did come prepared with a couple other observations as well.

Jennifer Doss: All right. I think you did this last time, Audrey, you had three predictions, and you threw them all out there. And we asked for one. I think it’s cheating. I still think it’s cheating, but I think you’re also right.

All right, Matt, your prediction was that we would have more conversations around custom QDIA solutions, meaning really at the participant level, more so things like managed accounts, you talked about maybe some steppingstones in between as well, like a target date fund and a full managed account.

So how did that go in 2024?

Matt Patrick: I think to the letter of what I predicted that came true. We talked about it more, for those that listen, Pete and I had a conversation with a couple of members from PIMCO and they went through their DC consultant survey. And that was a topic that was in there, was increased customization in the QDIA space.

And then certainly in terms of products we saw come to market or an increased push from those that were developing those types of solutions. All of that was true in terms of increased conversation, increased number of products that are out there. so I think that part was true. I think in terms of plan sponsors taking action, we’re starting to see a little more momentum there.

I wouldn’t say that’s a full-blown trend at this point, that’s–leaning on what Audrey just did there. I think this is one we expect to continue moving forward. The products are launched. We see a lot of innovation going on in this space. And that’s the theme is people feel that participants want more customization, and so we’re going to see more solutions come to market that look that way. So we’re trending in that direction.

Jennifer Doss: All right. Half a victory lap, got it.

Matt Patrick: Half a victory lap.

Jennifer Doss: All right, Pete. You said cybersecurity would become a more static part of fiduciary best practices. It would become more ingrained in the way that plan sponsors thought about their responsibilities. So how do you think that played out in 2024?

Peter Ruffel: Yeah, a lot of this prediction was rooted around the reality that back in 2021 when this guidance came out, it felt like a lot. It was new language, new lingo, new expectations. And I was under the impression or feeling that it was going to take some time for both consultants to figure out the process, recordkeepers to figure out the FAQs, and plan sponsors to figure out when and how to do it.

It anecdotally, from the conversations I’ve had with advisors, it does feel like it has become normalized. Many of the conversations that I’ve had with advisors, each have had different tacts that they take recordkeeper-specific. So knowing what solutions or what specialists that that recordkeeper may make available to them and their clients, or what solutions that we have off the shelf that we’ve come up with between our vendor and our IT teams to make available for our clients, the combination of all that has really manifested into something that seems to be more of a typical fiduciary objective. We think about fiduciary process all the time, and this fits neatly into that fiduciary calendar of annual to every couple of years objectives that you want to complete.

I do feel like it’s gone from something that seemed big and worrisome, of How are we going to do this to now Hey, we know that when we’re going to have a meeting on this, we’re going to pull in our IT team, our IT governance team, our data governance team to help wade through some of the jargon here so that we can make sure we’re doing our duty.

So, not something that we can totally measure, but from the conversations that I’ve had, I do feel like I hit the mark on this.

Jennifer Doss: All right, everybody’s taken a victory lap so far, and I’m going to take one as well because I had a prediction for 2024. I said a lot of stuff. Basically, it was all about the Department of Labor and the IRS was going to have to issue a ton of guidance around Secure 2.0 provisions, and I would say that this one is definitely true.

Our team was very busy reacting to how are we going to implement this and how are the recordkeepers going to implement this. We got things like guidance on Roth catchups, the timing and use of long-term part-time student loan matching, we got lost and found, emergency savings.

We got a lot of disclosures or guidance in 2024, and I think it’ll play into my prediction for 2025 is really allowed the industry to start moving forward with some of these provisions because for a while, I feel like we were at a standstill. People wanted them, but they weren’t sure exactly how to administer them or how to implement them and the recordkeepers had to build, and that all takes time. And so as we’ve gotten more and more guidance and certainty from these regulators, we can actually move forward with some of these. So I feel good about that, but. Again, did we get everything we wanted? No. So I’m going to take just as much of a victory lap as you guys did.

I think it’s fair.

Matt Patrick: Sounds like four for four.

Jennifer Doss: Yeah, exactly. Exactly. All right. Let’s shift our attention to 2025. Let’s mix up the order here a little bit, but Matt, maybe I’ll come to you first and talk about what’s your prediction. Again, stick to one. What is your prediction for 2025?

Matt Patrick: So I guess in order to stick to one, I’m going to lump two items under a broader term. But my prediction is that we’re going to see an increase in discretionary services for plan sponsors. So the two things fitting under there. One, essentially a continuation of an ongoing trend, which is, plan sponsors hiring a 338 investment manager. And then the new one that I feel would be more like an emerging trend would be the hiring of a 316 plan administrator.

So we can cover what those two are, but it’s usually, these are discretionary services, you’re handing off some component of your fiduciary responsibilities to another party. and I think that is going to be a general theme of plan sponsors looking to offload as much as they’re able to in these areas.

Quick summary of those two, 338 investment manager. This is probably the term that more people are familiar with. It’s been an ongoing trend. This one’s more of a prediction that we expect that to continue where we’ll see more plans hiring a 338 investment manager. This would be the ability to turn over the keys essentially for investment decision-making within your plan to an advisor, an investment firm. And you’re not offloading all of your fiduciary responsibilities to the plan sponsor, but you’re hiring them. They make the decision. I’m just monitoring that.

I believe that they are doing a good job. And then as long as I’m doing that piece, then I no longer have responsibility for reviewing funds, making sure I’m making changes on time that that’s all being handled on my behalf. For those that did listen to the PIMCO podcast that we had this year, they mentioned that in there as a trend that they’ve seen.

And one thing that they mentioned in the survey that they did was all of the consultants that they interviewed as part of that survey mentioned, 338 investment management as a trend they expected to continue for the next five years and were one of the things that they thought was gonna be most prevalent for plan sponsors.

So that’s seen from consultants. We’ve seen that consistent with other surveys, through groups like T. Rowe Price, who survey plan sponsors. People are looking for it. We see the search activity out there. I think that will continue to occur. The one that feels a little bit newer, even though it’s not technically a new concept is funny.

I was looking out there about 316. There was an article from 2014 that a plan sponsor wrote. I believe you’re familiar with 338. 316 is a similar thing, but for plan administration and people are going to become more familiar with that like they are with 338 and here we are 10 years later, now it feels like 316 is where 338 was maybe 10, 15 years ago, where it’s emerging. People have maybe heard of it, but they’d be hard pressed to describe exactly what it is and what that entails. some of the reason that’s hard to describe is it can mean different things. So again, I’m going to reference another episode we had a few months ago, we talked to Pentagra.

They’re a big player in the 316 space. And one of the topics that came up in there is you hear 316, but that term doesn’t necessarily mean the same thing in all contexts, which I think is why some people are like, I don’t know exactly what it means, but what I’ve heard is it’s out there and it’s something I can consider.

Like 338 investment manager, you’re offloading your investment responsibilities. 316 is for planned administration. So you’re handing off some of your duties, like filing your form 5500 or signing your plan doc. Some of those things that are just admin responsibilities that come with that.

In this trend of benefits are becoming more complex. I’m sure as we get into some of these other predictions, the decision-making as it relates to just offering a retirement plan and retirement benefits is becoming more complex. There’s more decisions to be made for plan sponsors. Anything that a plan sponsor can do to hand over the reins to a trusted party, people are going to want to do and plan administration is the next frontier that feels like there’s a wave coming for that. I think the trend there is people are going to be looking to offload responsibilities.

If you’re a plan sponsor, you’re hearing this, you haven’t looked into either of these services, you’re going to hear a lot more about them, and probably if you’re unfamiliar with them and it sounds like that’s something you would want to hire somebody to do and take those responsibilities off your plate.

Both of those are trends that we’re seeing across the industry and ones we expect to continue throughout this year.

Jennifer Doss: I think that counts as one. I’ll allow it.

Matt Patrick: Yeah. Increase in discretionary services. That’s one prediction.

Jennifer Doss: Correct.

Peter Ruffel: Outsourcing. Yeah, you got it.

Jennifer Doss: Well, I mean, this idea that people are trying to do more with less resources is not going away. And I think that’s on theme for a lot of things in life so.

Matt Patrick: Yeah. And I think, thinking to your prediction from last year of SECURE 2.0 comes out and there’s all these optional provisions. These are the decisions where you’re like, do you want to add this or not? these are all complicating factors that you wouldn’t have had prior to that.

So if you’re like, I can only focus on that if I get rid of some of my investment decision-making or some of my plain admin responsibilities, that’s the appeal that people are seeing in hiring for those services.

Jennifer Doss: Right. That’s a good point. All right, Audrey, I’m going to come to you. You gave us a little tease, but you didn’t say what your 2025 prediction was. So what is your prediction for this year?

Audrey Wheat: Instead of calling it a prediction, I want to talk about the themes that I’m seeing amongst several of our recordkeeper partners. The theme I’m going to go with for 2025 is an emphasis on the individual investor, both outside the plan and within the plan.

Many of our recordkeeping partners already have an individual investor presence, which is commonly referred to as retail in the financial industries. Some partners do not have that presence yet. So what we’ve heard and observed is that for the partners of ours that already have a retail side, there will be an emphasis in 2025 on integrating the retail and retirement sides several ways, sharing resources, processes, technologies, people.

And this is in the hopes of retaining assets within that particular record keeper’s ecosystem when the participant has a distributable event. You may ask why this new emphasis on retail and the answer ties back to the compressed margins that recordkeepers have really faced for years, and we’ve spoken about that on the podcast many times, there’s much less money to be made in recordkeeping.

So these firms, they have to go look for margin elsewhere. In this case, if balances go out the door, it leaves their ecosystem entirely. If they’re not able to retain it in the plan, the next best place for it to land is within the walls of that same firm, just on the retail side.

So within the walls of the plan, recordkeepers also want to regain margin as well. And doing so via raising recordkeeping fees really isn’t an option. So many recordkeepers are looking to add additional advice services, typically within a managed account, but not always. And that offers advice to participants for a little bit of an extra fee.

The recordkeepers position this as solving for the abundant need participants have for financial advice. And they also make a bit of extra revenue along the way. So that’s my prediction. Focus on the individual investor

Jennifer Doss: That’s an interesting one because it ties into a theme that more people need access. This is not just a high-class problem. Financial wellness is really for everyone and it’s from everybody that’s trying to get into a plan and save and budget and pay down their debt to folks that have way more complicated situations and are thinking about tax strategies and withdrawal strategies and getting closer to retirement.

So offering those types of solutions as a recordkeeper certainly plays into that broader theme of people want more. They’re asking for more and there’s more services available. So that’s an interesting dovetail between the two.

Pete, I hope I didn’t steal yours. what is your prediction for 2025?

Pete Ruffel: I went with one that I think is not a hot take by any means. One that we’ve spent some time talking about on this podcast, and certainly we’ve spent a lot of time having some face time about the topic with our clients as well, which is retirement income.

I’ve talked about it with you, Jennifer, on this podcast. but my prediction is that we’re going to start to see a little bit more of an increase of implementation of retirement income solutions. In 2024 and 2023, we spent a lot of time with clients introducing the topic of retirement income and discussing the merits of a recordkeeper solution they’re being asked to consider.

The reoccurring question in those conversations was how many clients are adopting it? With more examples of plan sponsor adoption now, including those that have been featured in news articles, it’s really normalizing the modern reality that retirement income is an important feature for plan sponsors to consider.

I think we’re at a nice confluence of product availability, both from an out-of-plan side to the in-plan side, as well as those that really work for the do-it-for me type participants. We’ve seen more types of retirement income products come to market in 2024 and some others to arrive on the scene in 2025.

What this affords plan sponsors now is the power of choice where previously they were hamstrung by what was available at their recordkeeper. With choice, I expect to see a likelihood of implementation thereafter. I would expect future retirement plan legislation in years to come will continue to build upon the ecosystem of retirement income.

SECURE Act certainly provided a lot of that. I do believe that the government is spending more time thinking about the retirement side of retirement plans. I think this is not, as I said, a hot take, but frankly, when I think back to myself maybe two years ago, my expectations for retirement income was, or at least the realities of implementation was a lot farther out, but we’ve seen an uptake in interest from our plan sponsors and certainly an effort by recordkeepers and asset managers alike to come up with thoughtful participant solutions that are going to meet participants in the middle and help optimize their retirement outcomes.

Jennifer Doss: You’re saying there’ll be more conversations though. You’re taking the Matt approach of we’ll talk about it more in 2025. Is that fair see the implementation too?

Peter Ruffel: I think those conversations are going to continue to happen for those that are still maybe peeling back on the elements, the jargon of it all. But I actually do think that we’re going to see an uptick in retirement income solutions implementations, whether it’s small, big, what have you. I expect what might come from that as well is surveys like Matt had mentioned where we’re going to see retirement income being a element that we’re measuring as far as how many plan sponsors have implemented this.

What we’ve seen so far in the TROs and PIMCOs alike, it’s just consultant interest or plan sponsor interest in this. But going into next year, and certainly in years to come, it’ll be more of a measure of how many plan sponsors have this implemented.

Jennifer Doss: Fair enough.

Guess that leaves me for my prediction for 2025. And in terms of next year, I talked about this a little bit, but just a minute ago, which is we finally got the guidance we needed for SECURE 2.0 for a lot of the optional provisions. Recordkeepers were able to build these solutions so that they can administer them.

And there was time to go and have discussions with a lot of plan committees to figure out which ones they wanted to implement, early in 2025, or which one they wanted to put off for further conversation. So I think the next evolution of that is plan sponsors are going to want to know what the outcome of these provisions are in two ways. they’re gonna want to know, one, what their peers are doing, because we’ve gotten a lot of questions about that when you’re making decisions, you want to understand what the ecosystem looks like. What does your peer group look like? Who’s adopting what? Not that you necessarily have to follow along with all the trends, but you do just want to have that as one piece of your consideration in your context.

So we’re going to get a lot more of those questions. People are going to want a lot more data around that implementation. And then the second thing I think we’ll see is if you’ve implemented, what is the impact of some of those optional provisions on your plan? Were there any. quote unquote, unintended consequences that you may have seen, things such as increased planned leakage or reduced contributions or maybe increased hardships, for example.

And I think some of the provisions that we will be talking about specifically are going to include student loan matching, self-certification of hardship withdrawals, the emergency withdrawal, not the PLESA account, but the $1, 000 withdrawal that you could do every three years, federal disaster withdrawals, and auto portability.

Each of these provisions, when implemented by a plan sponsor, we were involved in a lot of these conversations and we talked about this, Audrey, on the podcast we had with Fidelity, where they talked about trends and conversations at the plan sponsor level. Everybody has this intended positive impact.

They want to enhance the participant experience for adopting these things. It’s things like, we want to increase contributions, or we think this will get more people participating in the plan. We think this will reduce the time needed for people to get access to money that they need. But there are some other unintended outcomes that we could see, that are not so positive, we could actually see reduced contributions, or we could see small balances staying in the plan for longer than they normally would.

We could see more early withdrawals on the withdrawal topic specifically, I know some of those provisions I mentioned, they allowed you to pay it back to the plan over a certain amount of time. In other words, do we see that actually happening, Or are we getting plan leakage out of some of these?

So I don’t think we’re going to necessarily have all the answers to these questions in 2025, but I think it will be the start of knowing more about what the industry is doing and the plan, the peers that you’re looking at, what they’re implementing. And then what is of your return on investment of that particular provision. Did you get out of it what you thought you wanted to get out of it? And we’ll start to talk about that and monitor that in 2025, I believe.

Matt Patrick: So Jennifer, I feel like we’re going to cover some of those topics and tracking some of that on this podcast. I’m sure this will be a resource, but is there anywhere else that plan sponsors could look if they were curious to keep track of some of those, or if they want to do some benchmarking, like what’s the way to go about that?

Jennifer Doss: Yeah. I think the easy answer is if you have a planned consultant, CAPTRUST or otherwise, they can help you get that insight. You can ask your plan recordkeeper. So again, if you’re working with the Fidelities of the world, clearly they’re keeping track of it. We had that conversation with Audrey and I.

They know, roughly speaking, what’s going on. I know Empower’s got some similar data, and I’m sure all the other recordkeepers have something to that degree. You could ask them what’s going on. The reason I like the plan consultant, or plan advisor, route better is I think it would be number one. Audrey knows this really well.

We cover a lot of different recordkeepers. A trend you might see at Empower, if you’re at Empower, and what they’re going to tell you might be different than the trend that you would hear about if you were with Fidelity. And it’s just because all the different recordkeepers implemented these things at different times.

They had different emphasis on pushing some out quicker than others and that may impact some of the broad trends that you may get from them. So asking somebody who has a broad reaching view of a lot of different providers, would be most helpful. There’s also Plan Sponsor Council of America, their survey that they do on 401k plans every year.

I know that they started to ask some questions about implementation, or at least interest in implementation. I think we’re really early on for that to be super helpful, but that’s certainly a resource that’s out there as well.

All right. Everybody feel good about their predictions?.

Matt Patrick: How long do we have to edit this if it’s not going the way we want them to in the middle? Can we come post later?

Jennifer Doss: Yeah. You can–you can come back and edit this all year.

I have a fun fact for you guys. I don’t know if you all know this, but the word for the year for 2024 from Oxford Dictionary was particularly interesting to me.

It’s BRAIN ROT.

And brain rot is used to describe the cause and the effect of low-quality low-value content that you find on social media and the internet and the negative impact that that might have on your life of consuming that type of information on a regular basis. I would say that collectively, our resolution to our listeners is not to contribute to your brain rot in 2025.

We are going to bring you premium content every month. We’re going to bring you interesting things and it is not going to be low-value content or low quality. We want to do what you guys are interested in. To that effect, please like and subscribe wherever you get your podcasts.

And if you do have ideas for themes or topics you want to hear about in 2025, please reach out and let us know or leave a comment in the comment section. So given that, I think we’ll wrap up and happy new year to everybody. And thank you, Pete, Matt, and Audrey for joining me today. I really appreciate it.

We’ll see you guys all next month.

Announcer: The discussions and opinions expressed in this podcast are those of the speaker and are subject to change without notice. This podcast is intended to be informational only. Nothing in this podcast constitutes a solicitation, investment advice, or recommendation to invest in any securities. CAPTRUST Financial Advisors is an investment [00:24:00] advisor registered under the Investment Advisors Act of 1940.

This presentation does not contain legal, investment, or tax advice.

Outro: The discussions and opinions expressed in this podcast are those of the speaker and are subject to change without notice. This podcast is intended to be informational only. Nothing in this podcast constitutes a solicitation, investment advice, or recommendation to invest in any securities. CAPTRUST Financial Advisors is an investment advisor registered under the Investment Advisors Act of 1940.

CAPTRUST does not render legal advice. Thank you for listening to Revamping Retirement.

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